Estate Not Entitled to Second Extension of Time to File Return

The First Circuit held that the regulations under
Sec. 6081, which allow an executor of an estate only one
six-month extension of time to file an estate tax
return, were a reasonable interpretation of the statute.
Thus, the court further held that an application for a
second extension made on an altered Form 4768,
Application for Extension of Time to File a Return
and/or Pay U.S. Estate Taxes, was not a valid
extension.

Background

Margaret Dickow died on January 15, 2003. The
federal tax return for her estate was due October 15,
2003, nine months after her death. On October 10, 2003,
her husband, D. Charles Dickow (Dickow), as executor of
the estate, mailed the IRS a completed Form 4768 with a
check for $945,000 in payment of the estimated estate
tax due. The IRS received the extension application and
check on October 14, 2003, and under Regs. Sec.
20.6081-1(b), the estate’s filing deadline was
automatically extended by six months to April 15,
2004.

On March 23, 2004, Dickow sent the IRS what he
characterized as a second extension request: an
alteration of a standardized Form 4768 in which he
attempted to request an additional six-month extension
of time to file the estate tax return. Dickow did not
check any of the boxes on the form that identified which
of several recognized grounds qualified him for a filing
extension. He did, however, attach to the form a
statement that he was requesting “an additional six
month period of time to file [the federal estate tax
return] . . . because, despite due diligence on
[Dickow’s] part, he has not received an appraisal of a
real estate asset which constitutes a large portion of
the Estate.” In the section of the form titled
“Extension of Time to Pay,” Dickow typed in “October 15,
2004” as his requested extension date.

The IRS received Dickow’s request for a second
extension. The IRS denied the request but did not inform
Dickow that it had done so. On September 30, 2004,
Dickow mailed the estate’s federal tax return to the
IRS. The IRS processed the return and on November 1 sent
the estate the refund claimed on the return.

On September 10, 2007, Dickow sent the IRS an
amended estate tax return in which he claimed that the
estate was due an additional refund amount. On October
15, 2007, the IRS denied Dickow’s claim for the
additional refund. In 2009, Dickow filed a refund suit
in district court. The court rejected Dickow’s claim for
refund (Dickow, 740 F. Supp. 2d 231 (D. Mass. 2010)), and
subsequently he appealed the case to the First
Circuit.

The Law

Under Sec. 6511(a), a refund request must be “filed
by the taxpayer within 3 years from the time the return
was filed or 2 years from the time the tax was paid,
whichever of such periods expires the later, or if no
return was filed by the taxpayer, within 2 years from
the time the tax was paid.” Under Sec. 6511(b)(2)(A), if
the claim was filed by the taxpayer during the
three-year period prescribed by Sec. 6511(a), the amount
of the credit or refund shall not exceed “the portion of
the tax paid within the period, immediately preceding
the filing of the claim, equal to 3 years plus the
period of any extension of time for filing the return.”
Therefore, to determine the lookback period for a refund
claim, the extension period for the return must first be
determined. Sec. 6081(a), which governs extension
periods for tax returns, states:

The Secretary may grant a
reasonable extension of time for filing any return,
declaration, statement, or other document required by this
title or by regulations. Except in the case of taxpayers
who are abroad, no such extension shall be for more than 6
months.

Regs. Sec. 20.6081-1 sets forth two
categories of extensions for filing an estate tax return.
The first, in Regs. Sec. 20.6081-1(b), allows a single
automatic six-month extension upon the timely filing of a
Form 4768 extension application. The second category, in
Regs. Sec. 20.6081-1(c), identifies three types of
extensions that may be granted “for good cause shown.”
Such good-cause extensions may be granted only to:

An estate that did not file a request for an
automatic extension prior to the due date for the estate
tax return;

An estate that is required to
file forms other than the estate tax return; or

An executor who is abroad and is requesting an
additional extension beyond the six-month automatic
extension.

A taxpayer seeking a good-cause extension within
these categories must also file a Form 4768 with a
“detailed explanation of why it is impossible or
impractical to file a reasonably complete return by the
due date.” The regulations clearly state that even
requests for extensions within these categories are
still at the IRS’s discretion.

The First Circuit Decision

The First Circuit held that under the Sec. 6081
regulations, the IRS did not have authority to grant
Dickow a second extension of time to file the estate tax
return for his wife’s estate. Therefore, the lookback
period in Sec. 6511(b)(2)(A) for filing a refund was
three years and six months (three years, plus one
six-month extension).

The court first considered whether the regulations
were valid. Per the Supreme Court’s decision in Mayo Foundation for
Medical Education and Research, 131 S. Ct. 704 (2011),the court found that it was required to analyze the
regulations using the two-part test from Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In this test, a court must
first ask if in the statute Congress has addressed the
precise question at issue. If it has not and the
relevant statutory text is ambiguous, the court must
determine whether the agency’s interpretation embodied
in its regulation is a reasonable interpretation of the
statute.

Looking at Sec. 6081 regarding the first test, the
First Circuit found that the statute expressly stated
only that a taxpayer could obtain a six-month extension;
it did not specifically address whether a taxpayer could
obtain more than one extension. Therefore, the court
moved to the second test. It found that the IRS had met
the reasonableness requirement, stating:

Having found that the regulation was valid, the
court applied it to Dickow’s situation. Because only one
six-month extension was allowed and Dickow had properly
obtained that extension, the lookback period in Sec.
6511(b)(2)(A) was three years and six months. Dickow
filed his amended claim for refund on September 10,
2007, so the lookback period extended to March 10, 2004.
The estate tax payment in question was made in October
2003. Therefore, the payment was not within the lookback
period, and the court held that it must dismiss Dickow’s
claim.

Reflections

Dickow also claimed that the IRS could not refuse
his refund claim under the theory of equitable estoppel.
In particular, he argued that the IRS was estopped from
doing so because it had misrepresented that the second
extension had been granted by not telling him explicitly
that it had been denied. The Ninth Circuit rejected this
argument on the grounds that Dickow had not met the
technical requirements for equitable estoppel (most
notably that the IRS had not affirmatively
misrepresented the state of the extension request). The
court also noted that it was not reasonable for Dickow
to rely on an altered standard government form or to not
inquire whether his “invention” was
successful.

The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.D., and W. Eugene Seago, J.D., Ph.D., for their article, “Taxation of Worthless and Abandoned Partnership Interests.”

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